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District Court of Appeal, First District, Division 1, California.

KERR'S CATERING SERVICE, a corporation, Plaintiff and Respondent, v. DEPARTMENT OF INDUSTRIAL RELATIONS of the State of California et al., Defendants and Appellants.*

Civ. 19710.

Decided: June 28, 1961

Stanley Mosk, Atty. Gen., Preble Stolz, Deputy Atty. Gen., for appellants. Spruance, Simonian & Pretzer, San Leandro, for respondent. Brobeck, Phleger & Harrison, San Francisco, amici curiae appearing in behalf of contentions of respondent.

Defendants appeal from summary judgment in favor of plaintiff holding a certain order of defendant Industrial Welfare Commission unconstitutional and void.1

Questions Presented.

1. Is the deduction of shortages from the ‘commissions' of a woman employee a deduction from ‘wages'?

2. Does the commission have authority to prohibit plaintiff, under a collective bargaining agreement, from deducting cash shortages from women employees' commissions, even though the minimum wage is not disturbed?


Plaintiff is engaged in the industrial catering business. Plaintiff brought this action for injunction and declaratory relief to test the validity of section 8 of Industrial Welfare Commission Order No. 5–57 (8 Cal.Admin.Code, § 11380). Defendants filed an answer and then a motion for summary judgment. Plaintiff filed a cross-motion for summary judgment. The trial court gave judgment in favor of plaintiff and denied defendants' motion.

There is no dispute on the facts. Plaintiff maintains a fleet of trucks which are sent out daily on regular routes to various business and industrial establishments in the East Bay. The employees of the plants visited purchase coffee, doughnuts, sandwiches, etc., from the trucks. Plaintiff employs a number of women as driversalesgirls on these trucks. Pursuant to a collective bargaining agreement, these girls receive a base pay or wage which exceeds the minimum wage required by the Division of Industrial Welfare (§ 4, order 5–57). In addition the girls receive a 15 per cent commission on all sales made on a regular route over a quota figure of $475 per week. After such employee has been with the company for 3 months overages and shortages are totaled monthly, and if there is a net shortage for a particular route, it is subtracted from the commissions earned by the employee working that route. The shortages are computed as follows: Before leaving on her route the driver-salesgirl is required to inventory the goods on her truck. She receives a small amount of cash for change purposes. At the completion of the day's work she again is required to inventory her truck, and turn in her cash. The total of the cash and the retail value of the merchandise remaining at the end of the day should, in theory, equal the value at the beginning of the day. In practice it does not, and the extent of difference is the amount of the overage or shortage.

An administrative determination was made that the shortages here involved are not caused by a dishonest or wilful act or by the culpable negligence of the employee. This determination is not attacked.

Plaintiff was informed by the division that this method of operation was unlawful under section 8 hereafter set forth.

1. Deduction Is from ‘Wages.’

Section 8 of order 5–57 provides: ‘Cash Shortage and Breakage. No employer shall make any deduction from the wage of an employee for any cash shortage, breakage, or loss of equipment, notwithstanding any contract or arrangement to the contrary, unless it can be shown that the shortage, breakage, or loss is caused by a dishonest or wilful act, or by the culpable negligence of the employee.’

Amici curiae contend that as the deductions for shortages are only from the ‘commissions,’ if any, earned by the employee, and not from the basic wage, section 8 is not violated. Plaintiff makes no such contention. While order 5–57 gives no definition of ‘wages,’ section 200, subdivision (a) of the Labor Code does. “Wages' includes all amounts for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculation.' (Emphasis added.) This section completely answers the contention adversely. See also People v. Alves, 1957, 155 Cal.App.2d Supp. 870, 320 P.2d 623, holding that payments to a health and welfare fund required by a collective bargaining agreement constitute ‘wages.’

2. Power of Commission.

Section 1182 of the Labor Code provides: ‘After the wage board conference and public hearing, as provided in this chapter, the commission may, upon its own motion or upon petition, fix:

‘(a) A minimum wage to be paid to women and minors engaged in any occupation, trade, or industry in this State, which shall not be less than a wage adequate to supply the necessary costs of proper living to, and maintain the health and welfare of such women and minors.

‘(b) The maximum hours of work consistent with the health and welfare of women and minors engaged in any occupation, trade, or industry in this State. The hours so fixed shall not be more than the maximum now or hereafter fixed by law.

‘(c) The standard conditions of labor demanded by the health and welfare of the women and minors engaged in any occupation, trade, or industry in this State. * * *’

Subdivision (a) grants the commission the power to deal solely with minimum wages for women and minors. Subdivision (b) grants it power to deal solely with maximum hours of work for women and minors. All parties agree that neither of these subdivisions grants the commission power to enact section 8. The commission contends that subdivision (c) grants it that power in that the regulation of cash shortages is a ‘condition of labor’ demanded by the welfare of women employees. Plaintiff contends that said subdivision does not grant that power, and, if it does, the subdivision is unconstitutional as violating plaintiff's liberty of contract.

Plaintiff contends that while the statute gives the commission general power to fix ‘[t]he standard conditions of labor’ and that while wages and hours are in a sense ‘conditions of labor’ the general grant of power in subdivision (c) is limited by subdivisions (a) and (b) in that the commission cannot fix the amount of wages to be paid, but only the minimum wage, nor fix the hours to be worked, but only the maximum hours. But, says the commission, it is free to make regulations relating to ‘conditions of labor demanded by the * * * welfare of the women * * *’ even though such regulations affect wages; and that section 8 deals with ‘conditions of labor.’

The commission points out that in determining whether section 8 is within the power of the commission to adopt, two things must be noted, first, Labor Code, § 1200 specifically provides that the commission's regulations are presumed to be reasonable and lawful, and secondly, ‘Administrative rules and regulations are presumed to be reasonable in the absence of proof to the contrary and courts will not substitute their judgment for that of the administrative agency unless it is clearly shown that the regulation is so unreasonable as to be arbitrary or capricious, or in excess of the authority vested in the agency. [Citations.]’ Bess v. Park, 144 Cal.App.2d 798, 804, 301, P.2d 978, 983, emphasis added. Here, in spite of the presumption that the commission's act is lawful, it appears that the commission is acting in excess of the authority vested in it by subdivision (c). We are not required to consider the question of the reasonableness of the regulation imposed by section 8, unless and until we determine whether or not the commission had the power to enact it.

The problem reduces itself to the question, are deductions of shortages from wages a mere matter of financial consideration, or are they ones affecting ‘conditions of labor demanded by the health and welfare of’ women employees?2 Conceivably, anything that increases or reduces the overall compensation of an employee could be considered a condition of labor demanded by the welfare of the employee. Thus, under such a theory a scale of wages higher than the minimum referred to in subdivision (a) could be required under the welfare clause of subdivision (c). However, it is conceded that by limiting in subdivision (a) the commission's powers to the fixing of minimum wages, the Legislature was restricting the commission's power to otherwise deal with wages. This restriction, however, would not apply to a matter which although indirectly affecting wages was actually a condition of labor required by the welfare of the employee. Protective clothing is an example of this. A regulation requiring the employer instead of the employee to pay for the clothing, obviously affects the employee's wages, yet primarily the regulation is dealing with a condition of labor required by the employee's health and welfare, namely, the assurance that the employee's protection will not be dependent upon his failing to provide such protective clothing when and as needed because his income would be reduced by the amount of the clothing's cost.

The commission claims that the main reason that requiring the employer to absorb all cash shortages is a matter of a condition of labor demanded by the welfare of the women, is that the regulation ‘protects working women from exploitation by the unscrupulous,’ that ‘although the employer insists that she is allowed to take such time as necessary, there is doubtless considerable pressure to leave on time. Accordingly there is considerable temptation to accept as correct what the employer has stated has been placed on the truck,’—then at the conclusion of the day, says the commission, ‘No doubt the desire to leave and get home tends to make the girls rely on the office to count the money correctly. Thus at both ends the employer is in a position to fudge the accounts by padding the inventory in the morning and by losing money or inventory in the evening.’

It must be remembered that we are dealing here not with a constitutional grant of authority to impose a requirement of this kind, but with the question of whether the Legislature has provided statutory authority for the order. The Legislature has not provided the commission with power to regulate all conditions of labor but only those which affect the welfare of the women employees. The situations mentioned by the commission as calling for regulations to protect the welfare of the women employees are not shown to exist.3

If (although there is no evidence thereof) there is a possibility, as claimed, that the employer does not give the employee sufficient time to make the inventory either at morning or night, a regulation requiring that sufficient time for this purpose be given employees would be a condition of labor for the employee's welfare. It hardly can be said that a drastic regulation such as set forth in section 8 could be justified merely because some employee is more anxious to get home early than to exercise her right to check her inventory. It would seem that other than as a method of increasing the employee's income, the regulation is not demanded for the welfare of the women employees. It must be remembered that from the time the employee leaves the employer's premises until she returns, the employer's money and goods are entirely in her hands. Any shortages are not due in any way to any action by the employer but solely to her actions in not guarding her stock. Surely, the welfare of an employee does not demand that she be rewarded for carelessness.

Deductions for cash shortages are entirely different from deductions for breakage. Breakage can be caused by many causes beyond the control of the employee. Because of this fact, if the employee were required to pay for breakage, there would be interminable conflicts between the employer and the employee over the cause, thereby bringing about what the commission suggests without any basis is the situation with reference to shortage deductions, namely, ‘exploitation [of the women] by the unscrupulous.’ Moreover, generally speaking, the employer has some control over breakages in that they occur upon his premises. With cash shortages, he has no such control as the employee has full control over her ‘wagon shop.’

In California Drive-In Restaurant Ass'n v. Clark, 1943, 22 Cal.2d 287, 140 P.2d 657, 147 A.L.R. 1028, the court upheld a regulation prohibiting tips received by women and minor employees from being included in the minimum wage fixed by the commission on the ground that to permit the employer to retain tips received by the employee below the minimum wage ‘would be a subterfuge for him to receive all the tips and pay the minimum wage. The end result would be counting the tips as a part of the legal wage.’ 22 Cal.2d at page 293, 140 P.2d at page 660. The basis of the decision was that the regulation was proper in order to make the commission's rules as to minimum wage effective. Obviously there is no similar situation here. The main question in that case was whether the Statutes of 1929, page 1971, requiring an employer who intends to keep tips or gratuities received by him employees to post a notice to that effect, repealed the commission's regulation above mentioned. It is significant that in holding that it did not, the court said that the prohibition against the employer retaining any portion of the tips ‘should be strictly limited, and said section would not be violated in instances where the employer retained the entire amount of all tips received above the minimum wage, or deducted the tips from the amount of any wages he agreed to pay in excess of the specified minimum.’ 22 Cal.2d at page 293, 140 P.2d at page 660; last emphasis added.

We are dealing here, not with what power the Legislature could have conferred on the commission, but with what power it did confer.

The commission states that subdivisions (a) and (b) are limitations on the power granted in (c), and admits that the power granted in (c) does not include the right to fix wages or hours and yet the commission seems to argue that even if section 8 deals with wages, subdivision (c) gives the commission the power to increase the employee's wages by merely stating that such increase is a condition of labor demanded by the welfare of the women.

To hold that such power is given by subdivision (c) is to completely ignore the effect of the obvious power limitation in subdivision (a).

In determining whether the Legislature in the enactment of section 1182 intended to grant to commission under subdivision (c) the right to deal with wages additionally to establishing a minimum wage under (a), section 224, Labor Code, becomes significant. While the section is dealing with a different situation than is section 1182, the intent of the Legislature to leave matters concerning wages (other than the minimum wage) to collective bargaining or to agreement between employer and employee is well shown. Section 224 states that section 221 (prohibiting an employer from receiving a rebate from the employees), section 222 (prohibiting withholding an employee's wages with intent to defraud), and section 223 (prohibiting secret payment of wages lower than designated scale), shall not apply to deductions to cover insurance premiums, hospital or medical dues or other deductions when authorized in writing by the employee or by collective bargaining. Thus, it appears that the Legislature in dealing with the matter of wages desired to protect the principle of employee and collective bargaining, except in specified situations. To interpret section 1182, subdivision (c), as the commission did here, would be to disregard the intent of the Legislature.

The fact that there are other states which have adopted measures requiring cash shortages to be obsorbed by the employer is not important here, for the reason that we are not dealing with the power of the Legislature to either make such a regulation or grant power to the commission to make it. As before stated, we are only concerned with the question of whether or not such power was granted to the commission.

Thus it is a case of interpreting our statutes. On the question of whether deductions for cash shortages are a part of conditions of labor demanded by the welfare of the women employees, the nearest approach to the situation here is that in Southern Pac. Co. v. Joint Council Dining Car Employees, 9 Cir., 165 F.2d 26, certiorari denied 333 U.S. 838, 68 S.Ct. 608, 92 L.Ed. 1122. There the union brought suit against the railroad company claiming that the minimum wage prescribed in the Fair Labor Standards Act was not being paid. It was agreed that if the free meals supplied to dining car employees were to be considered as a part of the wage, then the minimum was being paid; otherwise not. One of the union's contentions was that the free meals were a ‘working condition’ rather than a part of the wage. As to this contention the court said, ‘If the free meals (part of the ‘price’ paid for his services) is a ‘working condition,’ though given when not working, then we have the absurdity that the cash paid is also a working condition. In another sense, the payment of the price to secure a man's working is a condition precedent to such working, but it is not a ‘working condition’ in the ensuing employment.' 165 F.2d at page 29; see California Employment Comm. v. Black-Foxe Military Inst., 43 Cal.App.2d Supp. 868, 110 P.2d 729.

It is unrealistic to compare deductions for shortages where the entire control of the merchandise and cash is in the hands of the employee, with secret deductions or ‘kickbacks,’ nor is there any basis for stating that because of such deductions there is danger of the employer through manipulation passing on to the employee expenses which should normally be borne by management. At least, no such danger is shown in this case. If such danger exists it is a matter of which the Legislature should take cognizance and grant the commission authority to regulate against. It is not for the courts to assume the existence of such danger in order to disregard the Legislature's obvious intent to leave the regulation of wages, above the minimum wage, to employer-employee bargaining, nor should the courts make such assumption in order to hold that what is obviously a financial matter is a ‘working condition.’

The commission contends further that for a long time it has construed subdivision (c) as giving it general powers in many matters dealing with conditions of labor, that these interpretations have never before been challenged, and that such administrative construction should be followed ‘if not clearly erroneous.’ In re Adoption of Parker, 31 Cal.2d 608, 615, 191 P.2d 420, 424; Los Angeles County v. Superior Court, 17 Cal.2d 707, 712, 112 P.2d 10. Applying this rule, however, supports plaintiff's contention. While it is true that the commission for a long time has applied subdivision (c) to many matters which it considered conditions of labor demanded by welfare of women, it was not until 1957 that the commission determined that it had the power to require cash shortages in the ‘Public Housekeeping Industry’ (the designation applied by the commission to the type of business conducted by plaintiff) to be paid by the employer. In fact, for a number of years its regulations left the question of responsibility for cash shortages to collective or employee bargaining, subject only to the requirement that no deduction from minimum wages could be made. Thus, the commission, up to 1957, interpreted section 1182, subdivision (c), as limiting its power to deal with wages to the requirements of subdivision (a). The fact that the commission applied subdivision (c) broadly to other matters but limitedly to cash shortages indicates that the commission administratively interpreted subdivision (c) as being in this respect limited by subdivision (a). As we said in Yosemite Park & Curry Co. v. Dept. of Motor Vehicles, 1960, 177 Cal.App.2d 448, 454, 2 Cal.Rptr. 431, 435, concerning the administrative practice there, ‘This long standing practice of the department charged with the administration of these laws is persuasive as to their meaning. [Citations.]’

Inasmuch as we have determined that section 1182 does not grant the commission the power to adopt section 8, it is unnecessary to consider the contentions as to whether such a regulation, if the legislative authority to adopt it existed, would be reasonable or constitutional.

The judgment is affirmed.

I dissent.

The question we ponder here is finely balanced; the resolution is difficult. The majority opinion is pristine and persuasive; if one were to accept its major premise it is compelling.

And yet I fear its implications. We invalidate, here, not a regulation which restricts individual freedom as against governmental encroachment, but we strike down an economic regulation of a government agency which has been set up to protect employees who are peculiarly weak in collective bargaining—women and minors. Because of this basic purpose of the legislation I am loathe to interpret the grant of power to the commission in a spirit of narrowness. If we invalidate the regulation involved here, we necessarily throw doubt upon many other regulations of the commission which protect the health and welfare of these employees. I would insist that the regulation stand unless its opponents show that it is surely outside the scope of the agency's province and clearly arbitrary. I do not believe the opponents have sustained this burden.

The commission undoubtedly believed, with reason, that the method, the technique, of deduction from the woman's or the minor's wage in itself constituted a dangerous device. The history of this subtle means of reducing a wage has been an unsavory one. In the past employers have utilized secret deductions or ‘kickbacks' to make it appear that the employer paid the wage provided by the collective bargaining contract or by a statute, although, in fact, he paid less. The nefarious use of this tactic during the days of the depression led to the enactment of Labor Code, §§ 221–223. Stats.1937, p. 200. As the Supreme Court said in the case of Sublett v. Henry's etc., Lunch, 1942, 21 Cal.2d 273, 131 P.2d 369, ‘These sections * * * are declarative of an underlying policy in the law which is opposed to fraud and deceit.’ 21 Cal.2d at page 274, 131 P.2d at page 370.

The device of the wage deduction has also often been used to shift to the worker the payment of improper and unconscionable amounts. Thus Shalz v. Union School Dist., 1943, 58 Cal.App.2d 599, 137 P.2d 762, involved deductions by the employer from stipulated wages for payment of exorbitant amounts for lodging and transportation. These deductions were in reality nothing more than devices to reduce the wage scale. Because of the danger of fraudulent use of deductions and because employers through manipulating them could pass on to workers expenses which should be normally borne by management, our statutes have prohibited such withholding except in specified situations, not only for women and minors but for all workers. See §§ 222, 222.5, 223, 224 of the Labor Code.

The policy underlying this legislation rests in part upon the importance of protecting the worker in the realization of his expected pay. The worker relies upon such anticipated compensation whether it be computed upon the basis of a set minimum, a piece rate, or a commission. To riddle that compensation with unanticipated or undermined deductions is to disrupt the normal expectancy of standard compensation and to impose special hardship upon the employee. It is not too much to say that the policy of the State of California does not favor deductions or withholdings from payment by employers except as specifically authorized by statute.

The devious device of the deduction has been used here to reduce the woman's earnings for causes beyond her fault or control. The commission prohibits the deduction for shortage, breakage, or loss of equipment unless such loss is caused ‘by a dishonest or wilful act, or by the culpable negligence of the employee.’ While the majority state ‘the walfare of an employee does not demand that she be rewarded for carelessness' and that ‘shortages are * * * due * * * solely to her actions,’ (page 403) the loss in the involved situation may be due to theft, breakage, or breakdown of equipment quite beyond the employee's control. The purpose of the regulation, then, is to protect the expected and standard compensation of the employee against the deduction which inures from matters beyond his own fault or control. The legality of the regulation rests upon the proposition that the standard conditions of labor demanded by the health and welfare of the employee is destroyed if the standards of computation can be corroded by arbitrary deductions not related to the employee's performance.

If the commission does not have the power to forbid the device of the deduction here, I find it hard to understand how it has the power to do so in other instances. The commission has exercised such power in other respects: thus sections 9(a) to 9(c) of order number 5–57 forbid deductions for required uniforms, deductions for tools or equipment and deductions for protective garments. The majority suggests that deductions for protective garments may be differently treated than the instant deduction, stating that ‘by limiting in subdivision (a) the commission's powers to the fixing of minimum wages, the Legislature was restricting the commission's power to otherwise deal with wages. The restriction, however, would not apply to a matter which although indirectly affecting wages was actually a condition of labor required by the welfare of the employee. Protective clothing is an example of this.’ (Page 402.) Whether the subjected matter of the regulation operates to protect the compensation of the employee or the physical standards of the employee does not determine its validity: the test must be the adverse effect of the practice upon the welfare of the employee. The vice of the technique of deduction, as applied here, may be as destructive of the welfare of the employee as the use of deductions for protective clothing.

The attempted distinction of the majority opinion as to losses from breakages must, I believe, likewise fail. The opinion apparently recognizes the indefensibility of an employer's forcing upon an employee the assumption of a loss for a breakage that occurs upon the employer's premises. Thus the opinion states that ‘generally speaking, the employer has some control over breakages in that they occur upon his premises.’ Page 403. If this means that the commission could properly issue an order of the instant type if it were applicable to work performed upon the employer's premises, I must submit that the distinction is unrealistic. Why should the commission be empowered to forbid the deduction because of differences in the employer's control? The arbitrary nature of the deduction lies in the fact that it is imposed despite the employee's lack of fault. The employee might be equally faultless if the breakage occurs off the employer's premises as well as upon them.

The majority's basic reasoning seems to be that a prohibition of a deduction from earnings through commissions necessarily protects the total wage; that the only power of the commission derives from subdivision (a) which pertains to minimum wages, and that the protection of the total wage thus lies beyond the commission's power. The reasoning overlooks the essence of the regulation: the prohibition of an obnoxious practice destructive of the employee's general welfare. The compensation aspect of the regulation does not infect it with an exclusive monetary purpose and negate all other objectives. For instance, to concoct an extreme hypothetical illustration in order to test the principle, the commission might forbid the deduction of penalties from total wages for joining a union or engaging in collective bargaining activities. The power of the commission to forbid the employer from interfering with the employee's rights would thus assume the aspect of protecting the wage of the employee, a wage greater than the minimum. Yet such an effect of the regulation would not necessarily invalidate it if its purpose were the protection of the standard conditions of labor demanded by the health and welfare of the employee.

To uphold this regulation is not to grant to the commission the power, as amicus curiae suggest, to regulate ‘well-nigh every financial and economic arrangement between employer and employee * * *.’ The commission may validly prohibit only practices which destroy standard conditions of labor demanded by the health and welfare of the women and minors. The test must be whether or not the prohibited practice, in view of its past effects upon employees, and in light of its anticipated future consequences, will adversely affect standard conditions of labor demanded by their health and welfare. Does not a court arrogate to itself a peculiar omniscience in declaring the commission not only wrong in its conclusion as to these matters but powerless even to reach it? Economic history discloses the danger of the arbitrary deduction from the wage; employer deductions for causes as to which the employee is faultless disrupt satisfactory employer-employee relations; the state's policy itself discourages such deductions. Such considerations as these support the commission's regulation, and I am unable to find any reason why the regulation, accordingly, does not fall within the commission's responsibility to protect the standard conditions of labor demanded by the health and welfare of the employee.

In summary the effect of the ruling is to reduce to narrow limits the authority of the commission under subdivision (c). The majority say that if a regulations is decreed by the court to affect wages only, the regulation fails because the commission is confined to the establishment of minimum wages under subdivision (a). But, in my judgment, the commission properly found that the arbitrary deduction for losses caused by thefts beyond the employee's control adversely affected her welfare. Its purpose extended beyond the matter of wages alone; it prohibited a questionable practice which the employer used here for an obnoxious objective. I believe that, in declaring the commission's findings to be without warrant, the majority overlooks the realities of labor-management relations and the deleterious effect of the prohibited practice. The end result is the partial nullification of the legislative intent to protect women and minors against the destruction of the standards demanded by their health and welfare.

For the reasons above stated I believe the regulation reasonable as well as within the power of the commission.

I would reverse the judgment.


1.  An amici curiae brief was filed in behalf of Air Transport Association of America, supporting the judgment.

2.  It is conceded that the health of the women employees is not involved. Hereafter only ‘welfare’ portion of section 8 will be referred to.

3.  The commission states that the record in this case would not support an inference that plaintiff is cheating its employees.

BRAY, Presiding Justice.

DUNIWAY, J., concurs.